EconPapers    
Economics at your fingertips  
 

Realizing smiles: Options pricing with realized volatility

Fulvio Corsi (), Nicola Fusari and Davide La Vecchia

Journal of Financial Economics, 2013, vol. 107, issue 2, 284-304

Abstract: We develop a discrete-time stochastic volatility option pricing model exploiting the information contained in the Realized Volatility (RV), which is used as a proxy of the unobservable log-return volatility. We model the RV dynamics by a simple and effective long-memory process, whose parameters can be easily estimated using historical data. Assuming an exponentially affine stochastic discount factor, we obtain a fully analytic change of measure. An empirical analysis of Standard and Poor's 500 index options illustrates that our model outperforms competing time-varying and stochastic volatility option pricing models.

Keywords: High-frequency; Realized volatility; Option pricing (search for similar items in EconPapers)
JEL-codes: C13 G12 G13 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304405X12001808
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:107:y:2013:i:2:p:284-304

DOI: 10.1016/j.jfineco.2012.08.015

Access Statistics for this article

Journal of Financial Economics is currently edited by G. William Schwert

More articles in Journal of Financial Economics from Elsevier
Bibliographic data for series maintained by Haili He ().

 
Page updated 2020-12-29
Handle: RePEc:eee:jfinec:v:107:y:2013:i:2:p:284-304